Great Expectations

Ever since the 1940s, when CFO J. Edward Lundy helped restore Ford Motor Co. to profitability, training and mentorship have been as much a part of the carmaker's financial strategy as number-crunching and analysis. The legendary Lundy "established the pattern we still have today," says Paul Beer, finance manager at Ford and a member of its executive committee for recruiting. "I learn my job from my supervisor, I teach the folks who work for me, "I learn my job from my supervisor, I teach the folks who work for me, and they teach the folks who work for them." Ford's current CFO, Don LeClair, and past CFOs Allan Gilmour and John Devine (now at General Motors) are products of the company's finance training program.

But during the recent economic downturn, the program stalled. As Ford's worldwide corporate staff shrank, a key part of the program — rotating recruits to stimulating new assignments every two years — lagged. "In those years where hiring was relatively low, we realized the program wasn't meeting our goals," says Beer.

Ford's traditional emphasis on recruiting MBAs had left the finance department with too many staffers who were overqualified for the available assignments — and too little hand-holding for the undergraduates who came in under the same program. Meanwhile, recruits at both levels got stuck in the same job for longer than the standard two years, in part due to lack of oversight and in part because incoming classes were not large enough to replace them.

Many other finance training programs have suffered during the economic downturn. Lucent, for example, was unable to recruit a class of 2003, and has cut out international assignments to save costs. At AT&T, finance managers are struggling with meeting recruits' expectations of the Financial Leadership Program, a series of rotations plus dedicated mentoring. The program has turned out some 200 graduates in its 10 years of existence, and many have gone on to become finance managers at AT&T and elsewhere. But Ma Bell has shrunk with age, and in October, it announced it expected to cut more than 20 percent of its workforce in 2004. "With a smaller company, there's not the duplication of staff, so you really rely on the FLPers to get the day-to-day jobs done — and it's not always stuff that's sexy or exciting," says Debi McCann, an alumna of the program who now oversees two such staffers in her role as director of business planning and development at AT&T.

The training slump has affected academe, too. Babson College, which provides finance courses for some 50 companies, including Lucent, says it is rethinking its economic model in light of the drop-off in finance recruiting. "We're moving more toward the consortium model," says Bill Lawler, associate dean at Babson's graduate school. That means combining employees from different companies in the same classroom. Besides providing cost savings, the consortium model is easier to customize, says Lawler.

Still, there are two good reasons to believe that finance training will again become a top priority. One is a reviving economy, which should thaw hiring freezes. Ford, for example, expects to hire some 200 new finance staffers by next spring, and is thus giving its training program a badly needed tune-up. "We felt the need to look at what we do with these new people again," says Beer.

The other reason companies won't let their finance training programs languish is Sarbanes-Oxley. According to a CFO magazine analysis of Compliance Week data, so far this year more than 50 companies have disclosed deficiencies in their internal controls related to staffing problems — issues that may lead to failing Section 404 of the act if not corrected (see "Raising Red Flags," September).

"We're seeing a number of things in the HR arena that can give rise to concerns — one of which is having an inadequate staff, another is that they're not competent to handle those responsibilities," says Stephen Wagner, senior partner and co-chair of Deloitte & Touche's Sarbanes-Oxley steering committee. A good finance training program may provide necessary protection from adverse opinions on internal controls.

Basic Training
To that end, some companies are looking for new technical skills out of their recruits. "[Sarbox], for some companies, has really pushed systematic development of accounting and finance staff to the front burner — it's opened issues that have been somewhat dormant for a while," says Jonathan Schiff, president of Schiff Consulting and founder and facilitator of the Finance Development Training Institute.

At Johnson & Johnson, for example, recruits to the three-year program of rotating assignments will be required to complete at least half of the CPA or CMA components to graduate. "If we don't have the rules right, we're useless," comments Jeff Cacciatore, head of the Finance Leadership Development Program. "We need to up the ante [on training] in order to enhance our credibility."

In general, though, the basic components of a corporate finance training program — rotating assignments bolstered by mentoring and some type of classroom experience — have changed little since General Electric rolled out its pioneering Financial Management Program in 1919. While companies vary on whom they recruit, how long the rotations are, and how extensive the classroom training is, the basics remain the same across companies as diverse as aluminum giant Alcoa, pharmaceutical producer Abbott Laboratories, and computer-hardware maker EMC.

In fact, when EMC decided to upgrade its program in 2001, it followed the GE model almost exactly. "The opportunity to participate in a training program creates a lot of buzz on campus when we go out to recruit," says EMC treasurer Irina Simmons of the three one-year rotations and two years of classroom training the company is offering to new finance staffers.

Based on requests from current employees, meanwhile, Citigroup is adding a refresher course on accounting to the "boot camp" it puts its MBA recruits through before sending them off on rotating assignments. It is also offering a new course on using balance sheets and income statements to its CFO University, a finance curriculum available to all levels of staff throughout the company.

Ford says its reengineered introductory program will be basically the same as the old one, except that it will put MBAs through a shorter program and keep a closer watch on new undergraduate recruits, rotating them through different finance roles within a single organization. Unlike some of its peers, Ford hasn't put a heavier emphasis on technical skills in response to Sarbanes-Oxley, according to the company's finance recruiting manager, Ashlie Pruett. College recruits "certainly will, at some point in their early careers, have experience with internal controls, but as for having the technical expertise to come in, I don't think we'll require they go back and get a CPA or master's in accountancy," she says.

The company has also stripped out much of the standardized classroom curriculum and large group conferences that it used to require. "We don't have a lot of book learning," says Beer. "You learn on the job." Still, Ford encourages recruits to go on for an MBA with 100 percent tuition reimbursement.

The biggest change at Ford, in fact, is a decision to focus recruiting efforts on undergrads rather than MBAs. "We'll be hiring 60 to 70 percent undergrads this year, whereas we used to hire 60 to 70 percent MBAs," says Pruett. Hiring undergrads is not only cheaper and more appropriate to the available openings, it also gives the company better prospects of diversity, since the proportion of women and minorities in undergrad classes tend to be higher than those in MBA programs. Another compelling reason, according to Pruett: "We can get the best of the best at undergrads, whereas we're competing with investment banks and others at the MBA level."

Job Swapping
Job rotation does have well-known difficulties, including matching employees with appropriate jobs on a regular basis, and getting managers to devote extra attention to their trainees. Such challenges have typically made job rotations difficult to achieve at small and midsize companies, where finance staffs tend to be leaner and positions fewer.

But at least one small-company CFO has found that documenting processes for Section 404 compliance has made it easier to give her staff the variety of experiences that many seek through rotational programs at big companies. "Once these processes become more documented, there's still expertise involved, but it becomes a little bit easier to swap them," says Melissa Cruz, CFO of Concord Communications Inc., a Marlboro, Massachusetts-based software company.

Based on the job catalog that 404 work has produced, along with twice-annual career-planning meetings between staff members and their managers, Cruz promotes lateral swaps among her 20-person finance staff to prevent boredom and build new skills. Recently, that meant the group doing travel-and-entertainment expense reporting traded another group for sales-tax processing, with each group teaching the other in its area of expertise. In another corner of the department, the manager who oversaw order administration cross-trained her group by having them fill in for finance staffers who handled licensing agreements when they went on vacation. That eventually allowed both groups to do both jobs — and boosted the manager's responsibilities.

"It is highly motivating, because it gives them an opportunity to do new things on a regular basis," says Concord vice president of finance Roger Blanchette, who often switches up the operational areas that his three senior financial analysts support. "There's not always a manager position open, but this gives them a way to continue to build their skills."

The swaps do take extra management time — both in the planning and execution — but they are well worth it, according to Concord executives, especially with turnover rates running below 5 percent in the past year. The swaps "improve our bench strength and create natural backups," says Cruz.

Culture of Learning
Building finance skills through such rotating assignments isn't necessary to satisfy auditors about the soundness of internal controls, though. In fact, the presence of any type of skills assessment and training program is generally a positive indicator of a strong control environment, according to Deloitte's Wagner (see "Passing the 404 Test," at the end of this article). "It's not just that there is a training program that can be pulled off the shelf, but that the organization has a commitment to [training]; that it is socialized into the culture," he says.

Many companies are starting from the ground up, taking inventory of skills at all levels in order to better tailor training to their staffs' needs. "People used to sit in a room and decide what the training should be and tell everyone they should schedule it," says Jonathan Schiff. "Now it's more targeted — people like development tied to their own career objectives."

One example of how the targeted approach can work: JP Morgan (a Schiff client) recently rewrote finance role profiles and installed a database that has staff members assess their skills and competencies against the profiles for their current positions, as well as ones they might hope to have in the future. "Before, we didn't spell out what was required for each individual job," says Jose Zeilstra, a vice president in JP Morgan's audit department. "Now, with the competency model, it gets it down to a much more granular level, so that people know exactly what's expected of them." Managers can get a report of the skills gaps their groups face, she says, and plan appropriate training from there.

Citigroup embarked on a similar course in developing its CFO University curriculum, but with a twist. Concerned that he "had no way to know if people are qualified to fill the CFO roles" when then-corporate CFO Todd Thomson asked for new internal candidates, finance learning and development director Robert Gimbl developed an online module dubbed CFO Simulation. The 15-hour simulation requires participants to navigate a series of challenges, such as balance-sheet problems and Regulation FD violations. The simulation is by invitation only, "a sort of self-evaluation" for high-potential staffers, according to Gimbl. At press time, more than 30 employees, including all country-level CFOs, were in the process of going through the test, in part to identify areas of training for current finance leaders.

The effectiveness of training is always difficult to measure — particularly in the short term, since the hope is to keep program graduates for years, in order to fill top executive ranks. For Gimbl, a clear sign of success is that 33 of the 35 openings for Citigroup CFOs in the past year have been filled internally, with nearly twice the number of senior finance staff members making career moves in 2003 than did so in 2002. At AT&T, the 50 percent retention rate of its Financial Leadership Program is testimony to its effectiveness — as is the loyalty of employees like investor relations vice president Rich Sullivan, an FLPer who returned to the company in 2002 after leaving to get his MBA.

For many companies, though, simply getting a clean opinion on Section 404 of Sarbanes-Oxley will be good enough. "Most companies," says Wagner, "continue to focus on the finish line — the first [404] filing."

Alix Nyberg is a contributing editor of CFO.

Passing the 404 Test

Transaction System Architects Inc. is one company that didn't have a choice about upgrading its training regime. In its 2002 10-K, the $277 million company reported that KPMG had found deficiencies in internal controls, including "staffing and training of personnel" — meaning the company would likely not pass its Sarbanes-Oxley Section 404 certification without making major changes. So when CFO David Bankhead joined the company in July 2003, formalizing the training program was among his top priorities.

"If you have any internal-controls problems, you probably have a problem with training; it's all interwoven," says Bankhead, noting that the company had to restate earnings down for 1998 through 2002 due in part to the staff's misunderstanding of proper revenue-recognition procedures.

Previously, the extent of the formal finance training was an annual weeklong conference plus outside seminars, according to Bankhead. Upon receiving KPMG's opinion, however, the company set to work on adding more-targeted training opportunities throughout the year.

For one, the company had KPMG train the finance staff on the most troublesome area: revenue recognition. It also sent staffers to seminars on Securities and Exchange Commission reporting, and signed them up for Webcasts on similar issues. In addition, Don Newman, the company's controller since last January, now includes training on technical topics in monthly staff meetings, and all finance managers are expected to help mentor their direct reports.

While the company is still working on getting its internal controls up to speed, its new training program has satisfied the auditors, according to its most recent 10-K. What's more, "we're starting to see some real benefits from our training program," says Bankhead, including more enthusiastic participation at the annual meeting and better collaboration among global finance staffers.

Small and Personalized
Many companies recruit more new hires than they could ever place in executive ranks, to hedge high attrition rates and reserve the option of weeding out underachievers. W.W. Grainger Inc., a $4.7 billion equipment supplier, takes a different approach, keeping its Financial Development Program small and personalized.

"We don't sift through and decide who we want to keep after three or four years; we try to make those decisions up front," says Ron Jadin, vice president of finance for Grainger and a graduate of General Electric's Financial Management Program. "We want the demand for these folks to be much greater than the supply."

In that spirit, the Chicago-area company has devoted all of its recruiting energies to a single school, the University of Illinois, and specially trains its vice presidents in interviewing techniques before bringing top candidates into company headquarters. Job offers go out to the fortunate four or five students within a week of their interviews, and are nearly always accepted, according to Jadin

Once on board, new hires have their choice of 12 types of assignments (6 in corporate finance, 6 on business-unit finance staffs), with the possibility of "tweaking" an assignment to better fit the skills they need to learn. They also undergo post-assignment debriefings to assess their progress. "Because we're small, we can be a lot more flexible than a large program that has a lot of bureaucracy," says Jadin.

Is the training a success? So far all of the graduates have found jobs within Grainger after their two to three years of short-term assignments, Jadin says, although with only 11 FDP graduates and eight people still in the six-year-old program, the data is slim. He has high hopes, though, that the program will continue and perhaps even grow, as other departments within Grainger, such as marketing, start to hire graduates of the program. "As our business becomes more fact-based, there's more demand for finance skills across the company," says Jadin, "and the rotational program makes it easier to go cross-functional, since the graduates have already built relationships in other departments." —A.N.